$32 billion loss by removing Negative Gearing blog image

$32 billion loss by removing Negative Gearing

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There are 1.7 million property investors in Australia, and 97% of them own one investment property.

Only 3% of them own two or more investment properties. The predominant demographic of the 97% are ordinary folk like nurses, bookkeepers, firemen, tradies, and so on.

They aspire that the investment property will assist them being self-funded and saves the government millions of dollars in providing them with an old age pension. These people are far from being rich.

Whilst the negative gearing losses claimed is around $13 billion which equates to a loss of revenue to the government of around $4 billion, the government makes up more than this when they sell the property and pay their capital gains tax.

Further, the property investors supply 96% of housing for tenants, and the government only supply less than 4%.

Should property investors pull out of this $18 billion industry, it will cost the government much more than the $4 billion from negative gearing and loss of capital gains tax when the property is sold.

Paul Keating tried to remove negative gearing in the ’80s, and rents went through the roof as people pulled out of investment properties.

He was forced to bring it back after only nine months.

According to Property Investment Professionals of Australia (PIPA), Labor’s plans of removing negative gearing and decreasing capital gains tax (CGT) concessions may cost the government $32 billion in just over a decade.

PIPA Chairman Peter Koulizos said their modelling revealed that Labor’s pronouncement in which they stated that these policies would save $32 billion over 10 years was a “flight of fancy”. He added that Labor would actually lose $10 – $32 billion due to property investors staying away from the market should the policies be implemented.

In addition, fewer investment properties could raise rent prices which in turn could further prevent first home buyers from getting into the market.

Mr Koulizos also pointed out that “investors already pay almost four times in capital gains tax what they receive in negative gearing benefits over a 10-year period, so the government is already ahead financially.”

Figures from the research

PIPA’s modelling uncovered some alarming figures. It has found that if property investment activity lessened by 5% due to the proposed changes, there would likely be 130,000 less rental properties in the market. This will result in a total loss of $10.5 billion in CGT revenue over 10 years.

In addition, a 10% less investment activity could result in 260,000 less rental properties, which in turn would result in a total loss of $21 billion in CGT revenue over 10 years.

Further, a 15% reduced investment activity would result in 390,000 fewer rental properties, and the total loss of CGT revenue would be $31.6 billion to the government over 10 years.

Numbers not even worst-case scenario

Mr Koulizos stated that the modelling was not even worst-case scenario. In the 2018 PIPA Investor Sentiment Survey, 45% of the investors revealed that they would delay their future investment plans should Labor implement the proposed policies.

He adds, “I have no doubt that limiting negative gearing and reducing capital gains tax concessions by the Federal Labor Party will discourage property investors from buying property.

“Labor says they want to incentivize investors to buy new property, but our research shows that 93% of investors buy established property as this has greater capital growth potential than new property.

“Under the proposed changes, investors will pay more capital gains tax, but since they have probably bought a new property that will mean lower capital growth and therefore reduced tax payable to the government.”

Findings a warning shot for the ALP – Frydenberg

Treasurer Josh Frydenburg has stated that PIPA’s research has identified that Labor’s proposed changes can have a significant negative impact, considering property investors might change their behaviour and avoid the housing market.

Mr Frydenburg added that the results were a “warning shot” for the ALP. He also said that they were a bleak indication of why they must backflip on their housing policy.

Opposition Treasury spokesman Chris Bowen, however, has rejected PIPA’s research stating, “There’s nothing to indicate it’s even based on a modelling of Labor’s policies”.

He added, “Mr Koulizos was at Josh Frydenberg’s ‘attack Labor’s housing affordability’ summit a few weeks ago.

“Josh Frydenberg is keen to deflect from his Treasury calling out the Liberal Party’s lies on the true impacts of Labor’s reforms on the housing market.”

Top industry bodies Master Builders Association and the Property Council of Australia have also criticised Labor’s proposals of removing negative gearing.

 

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